Lower-income country debt payments hit highest level since 1990 as hedge funds swoop in

Lower-income country debt payments have hit their highest level for 35 years, after more than trebling since 2010. Average debt payments for 56 lower-income countries reached 19.2% of government revenue in 2025, the highest level since 1990.[1] The debt crisis is being swooped on by vulture funds, who have just announced they are suing Ethiopia in the UK after a break-down in debt relief negotiations.

High debt payments reduce public spending,[2] including on vital services such as healthcare and education[3]. The lower-income country debt crisis of the 1980s and 1990s led to economic stagnation and increased poverty.[4]

Over recent years, seven lower-income countries have sought debt relief, but all have been frustrated by a slow process and inadequate amounts of debt relief.[5]

Ethiopia has been negotiating with creditors for five years. Hedge funds VR Capital and Farallon Capital Management threatened to sue the East African country in the UK Courts, pushing Ethiopia into a deal which would see them paid 28% more than government creditors.[6] China and France have now blocked the deal, and the private lenders have said they are suing Ethiopia through the UK Courts in response.[7]

In Ukraine, VR Capital and Aurelius Capital Management led a group of bondholders who demanded large payments through restructuring a particular part of the war-torn country’s debts, the so-called GDP-warrants. The bondholders rejected a very generous offer from the Ukrainian government, and pushed for a deal which will seem them repaid twice as much as other bondholders.[8] Moreover, the bondholders managed to negotiate terms which will double the amount owed if Ukraine defaults or restructures again.[9]

African Heads of State and Finance Ministers have criticised the G20’s debt relief process, saying it “has not provided a pathway towards the quick restoration of debt sustainability, creating some considerable scepticism as to its potential to deliver effectively for highly indebted countries, particularly in Africa”.[10] The UK holds the G20 Presidency in 2027.

A landmark UN agreement last year encouraged “jurisdictions to consider passing legislation aimed at limiting holdouts by creditors to facilitate effective debt restructuring.”[11] 90% of debts owed to private creditors by lower-income countries are governed by English law.

Heidi Chow, Executive Director of Debt Justice, said:
“Vulture funds are swooping in on the worst debt crisis in over three decades. The UK has the power to stop this predatory behaviour. As it takes on the G20 presidency next year, the government has the opportunity to demonstrate global leadership by overhauling the G20 debt relief scheme and passing new legislation to ensure private lenders take part in debt relief.”

Notes

[1] Debt Justice has calculated government external debt payments (principal and interest) from the World Bank International Debt Statistics database and IMF country reports. The data covers 56 low- and lower-middle income countries with debt payment and government revenue data back to 1990. The mean average payments for the 56 countries are: